President Obama is speaking as I type this post. He is making many promises, and I believe he will make every effort to see them through to the best of his ability.Regardless of his successes and failures in the coming years, we now have the focus of Washington and Wall Street working on preventing us from slipping into a depression and guiding us out of a year-old recession. Main Street is also doing its share to correct past mistakes, and they are making the biggest sacrifices.
These sacrifices come in the form of lower wages, cutting back on spending, living on fewer resources than they may have had available to them only a short while ago. We go on this journey together and many conjecture that things will get worse before they get better. I think this is only partially true. Unemployment appears to be rising but most of our problems seems to be known to us even if not resolved.
Looking forward to better times (or not), I think people will buy hand tools before they buy a car. They will buy roofing before they buy a house, and they will think to do things themselves before they will pay someone else. With that in mind I think Lowe's Cos (NYSE: LOW) and The Home Depot (NYSE: HD) are two stocks that will do well in a difficult economy and even better in a recovering economy.
Lowe's and The Home Depot are the largest players in the home improvement marketplace and no competitor will be able to match the industrial strength and compete when things turn around. I am consistent in recommending stocks that pay dividends and both of these companies do that; LOW pays 1.6% and HD pays 3.77%. Dividends historically have created an underpinning for overall stock appreciation and force companies to manage their finances tighter.
This is a result of both companies having lower beta's than most companies, and for those who fear things will get worse, then this should be important to you. Both companies have very low price-to-sales ratios of 0.65 for HD and 0.71 for LOW.
If Obama is able to lead us toward housing industry stabilization then both companies will do well. If we face continued personal financial difficulties then they will do well. If infrastructure projects are one of the tools that an economic base is created upon, they will also do well.
If we are to rebuild this nation's economy, then the companies that provide the tools and materials will be a part of the program.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
DISCLOSURE: I currently do not own shares of HD and LOW.
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Reader Comments (Page 1 of 1)
1-20-2009 @ 8:15PM
william lindblad said...
While I expect that they will survive also, I also expect that there will be store closings.
Yes, people will buy a hammer. I just bought a new 40 oz, but I did not buy it at either retailer. I also need a new compound miter and a router. But the homeowner does not need top shelf contractor quality, nor do I intend to pay the price. There are discounters.
Same can be said for the lumber end, you just have to know the ropes.
Given the state of the economy, these would be long term hold.
3-09-2009 @ 7:06PM
Ni Block said...
They get what they desirve.
http://lowes-lawsuits.com/